How The Decline Of The Chinese Economy Could Affect The United States

China has experienced enormous economic growth over the past several years, moving from the sixth largest economy in the world to the second over the past 15 years. But it seems that countries economic expansion has finally begun to cool off.

Growth in China has fallen to its lowest levels since 2009, which has many investors in the United States, and throughout the world, nervous about how this will affect them at home. This fear is compounded by the belief that Beijing may be cooking their books, meaning the economy may be even worse than they are letting on.

If the Chinese economy continues to shrink, many fear that this will bring other economies down as well. This comes at a time when governments are running out of money to continue jump starting economies in need, following the Great Recession of the United States as well as the European Debt Crisis and the troubles with Greece.

While it is still early to determine if China has just hit a minor roadblock or if country is, it doesn….. These are some of the main ways that China’s economic turbulence could affect the United States economy:

1) Trade Slowdown

United States – China trade is expected to surpass the United States – Canada trade relationship as the largest in the world, according to State Street Global Advisors. A slowing China economy would mean less purchases of United States goods.

However, exports only make up 13% of GDP, while consumer spending accounts for more than two-thirds. This means that the United States will likely not be greatly affected by reduced trade. As long as consumers continue to spend their money, the economy as a whole should be able to weather the storm.

2) American Business Hit

The United States stock market has significant exposure to China’s economic troubles. In fact, 40% of the revenue generated by S&P 500 companies comes from overseas markets. If China’s economy continues to struggle, it could hurt multinational companies that rely on purchases made from consumers overseas.

While many large companies, such as Apple and Nike, claim that China’s slowing growth has not hurt their business, continued downward pressure could eventually affect large companies with exposure to foreign markets.

3) China’s coming financial

The explosion of economic growth throughout China was fueled largely by an explosion of debt. But as the economy begins to slow down, the concern is that toxic loans could trigger a financial crisis similar to what happened in the United States with bad mortgages in 2008. Although many investors seem confident that the Chinese government will step in before a problem of the magnitude arises. The government has a cash hoard of $4 trillion and is willing to spend heavily to prevent a stock market plunge. The central bank has already aggressively lowered interest rates to help aid the economy.
Check out the video below to learn more about the problems within the Chinese economy.

Promising Signs For Greece Economy: Banks Reopen

Over the past half decade, Greece has been in the midst of an economic crisis which had finally reached a boiling point over the past several months. Recent events, however, hope to put the country back on track as they look to recover from the debt crisis.

The Greek parliament approved a new bailout package last week which includes tax hikes, pension cuts, strict curbs on public spending, an overhaul of the bargaining rules and a transfer of 50 billion euros of state assets into a special privatization fund.

This past Monday, Greece reopened its banks and started the process of paying off billions of euros owed to international creditors. This is a promising sign as the country looks to return to normal after new bailout reforms were put in place.

Over the past several weeks, banks had remained closed to save the financial system from collapsing due to an influx of withdrawals which could have left Greece in an even riskier position. The bank branches have finally reopened and customers lined up to try and get cash in hand as many are still weary of what the economic future holds for Greece.

Limits on withdrawal amounts are in place, with a cap of 420 euros per week. In addition, payments and wire transfers abroad are still not allowed, which has angered many people abroad with financial ties to the country. So while it is clear that Greece is now moving in a positive direction, there is still a great deal of work to be done.

Almost two thirds of Greece’s debt, which has amassed to around 200 billion euros, is owed to the eurozone bailout fund or other eurozone countries. Although Greece will not have to make any payments on this enormous debt until 2023. While a longer timeframe has been proposed by the International Monetary Fund, the current schedule will hopefully give Greece enough time to make good on these payments.

The head of the Greek bank association, Louka Katseli, recently stated that “capital controls and restrictions on withdrawals will remain in place but we are entering a new stage which we all hope will be one of normality.”

You can learn more about the the plans for Greece moving forward here as well a detailed explanation of the Greece debt crisis in its entirety from The New York Times.

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